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Related Books The following book is available online: Girls Just Want to Have Funds |
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Recent articles by MP Dunleavey: • 5 steps to starting over at midlife, 7/10/2005 • How a single mom makes it on $31K, 6/26/2005 • 20 ways to save on a shoestring, 6/19/2005 More... |
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Related Sites MSNBC retirement calculator CNNMoney retirement calculator Womoney: Financial planning for women and families The Money Club |
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| Zen and the art of retirement planning | |||||||||||||
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Lots of smart people are paralyzed when it comes to planning for retirement. Let us take a deep, cleansing breath, visualize and talk about cash flow, O Unenlightened One. By MP Dunleavey Editor's note: Columnist M.P. Dunleavey and six other women have come together online to strip away the myths surrounding money, lay bare their assets and liberate themselves from debt. Follow the quest for financial fabulousness of these "Women in Red" every second Monday in Dunleavey's column on MSN Money. Its time to talk about retirement -- everyones faaaaaavorite topic. Now lets be honest. Its not retiring thats so scary, its how much you need to save in order to get there. Or rather, how much you havent saved. I dont feel like Im making enough to get by, much less save for retirement, says Brice, 36, who has about $6,000 in her SEP IRA. And, being a free-lancer, its not like I can rely on a company pension or 401(k) -- so how am I supposed to deal with it all? Sadly, its not just the free-lancers (i.e., Brice, Yalitza and I) who feel this way. The same anxieties about the future cause even people with well-endowed 401(k)s to grind their teeth at night. A universal angst
How much is enough? Even if I think its enough now, will it really be enough then?
But the truth is, like most of us, shes never sat down to figure out what her nest egg would yield in future dollars, nor has she estimated what she and her husband will need in 30-odd years. Its a combination of fear and laziness, she admits, putting her finger squarely on the evil duo that keeps many of us paralyzed and clueless. Stir in the destructive belief that the future will take care of itself, and no wonder so many people dont have a grip on retirement. I didnt think about the future until recently, admits Yalitza, 33, who hasnt started saving for retirement. I spent my 20s living paycheck to paycheck. More Women in Red on MSN Money
Don't try this at home Fortunately the Internet abounds with retirement calculators. And most of them suck. If you must try one, keep in mind:
She used the one on MSNBC and was told that, to retire on her current income of about $50,000 a year, she would need $744,000 in savings -- which would be worth $3 million in future dollars. And in order to get there, shed have to save about $6,000 a month. I think I did something wrong, she says, pointing to another flaw in these tools: theyre confusing. And nerve-wracking. After I did this my neck was tight and I felt sick. It seemed like an impossible goal and I felt like I was going to be a bag lady. Move past the panic My experience wasnt much better. The CNNMoney calculator let me know that I had only a 50% chance of saving $547,000 by 2031, which is what I would need to have an annual retirement income of about $80,000, not including Social Security. Even better news: That would last me six years! Question: Can I schedule an early demise by reason of financial hardship? Fortunately, I had the good sense to call in some financial advisers. And I suggest you do the same before mucking about with your retirement numbers and giving yourself an aneurysm. If you use one of those calculators and find out that you need $5 million to retire comfortably, thats just going to be a barrier to you moving forward, says Susannah Blake Goodman, author of Girls Just Want to Have Funds, my all-time favorite money book for women. The Zen steps you've been waiting for And moving forward, as I learned, may not look like what you expect. Money management has more to do with habits and psychology than with investment vehicles, says Goodman. Habit No. 1: Get a grip on your cash flow. Sharon Rich, a psychologist and fee-only financial planner in Belmont, Mass., (www.womoney.com) was shocked at how much debt some of us Women in Red had. That tells me everyone needs to look at cash flow. And while saving for retirement is vital, paying down debt should be the priority for now, she says. You dont want to set yourself up for failure -- going into retirement, while running up more and more debt. Habit No. 2: Save automatically. Obviously save the maximum your retirement plan allows. If youre paying back debt, still save a little -- even $100 a month. But either way, dont wait until that properly caffeinated moment: Arrange for your bank or employer to deposit that money automatically into your retirement account each month. That way when your debt is paid off, you have a nest egg started, says Goodman. (Then just add your former monthly debt payment to your retirement. Dont treat it as a windfall!) Habit No. 3: Be reasonable. If youre paying off debt, saving for a home, raising kids or going to school, you simply wont be able to save as much, Rich says. The most important thing: Dont beat yourself up; all that shame, guilt and pressure only get in your way, Rich says. And dont stop saving either. Beth knows that she and her husband could probably save more, but their daughters day care costs $780 a month (more than our mortgage, she notes). So shes setting aside 14% of her salary, and, when her daughter goes to kindergarten, she plans to put that $780 toward their retirement. Habit No. 4: Turn awareness into action. Women need to be proactive about their long-term financial plans even more than men do, for the simple reason that women live, on average, about eight years longer than men. And women still are paid less and often receive less from company pensions and Social Security because of time spent out of the workforce (caring for kids or family members). Women start out with less and have to make it last longer, says Rich. And taking positive steps is essential. Now. Time to get going As woeful as my online retirement calculator experience was, and although it left me with more questions than answers, at least it pushed me to make a decision Ive been putting off: where to invest my SEP. (Like a lot of people, I didnt realize I had to invest it, so Ive had $5,500 gathering steam in a money market for a year. Whoo hoo.) Next, my husband and I took an important step toward knocking down our debt and getting real about our cash flow. We sublet our second bedroom to a roommate for $900 a month, while we spend more time upstate, where the living is cheaper. One more thing about retirement: You cant do it alone. Get a financial planner to help you focus on your financial future. Or a money buddy. Or start a support group (information is available at The Money Club). I swear that if I werent one of the Women in Red -- never mind responsible for writing about our progress -- I dont know when Id take action on these things. To paraphrase Gandhi, Whatever you do will seem insignificant, but it is most important that you do it. | |||||||||||||
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